EPAct 179D Experts

"The least expensive kilowatt, is the one not used."

- Jacob Goldman

The EPAct 179D Tax Aspects of Truck Distribution Centers

Throughout the United States, truck distribution businesses and their
facilities serve to house, maintain and dispatch the trucks that carry the
goods that sustain America's economy. In the midst of beginning to benefit from
a recovering economy, these businesses are now confronting higher truck fuel
prices and higher new truck replacement costs from mandated higher truck
miles-per-gallon fuel efficiency requirements. In an industry jarring
development, Wal-Mart, the retail juggernaut, has thrown down the gauntlet by
directly entering the truck distribution segment in its own huge vertical
market supply chain. As usual, Wal-Mart is focused on wringing out meaningful
supply chain wide cost savings that will enable the company to continuously
provide low cost products. To survive in this highly competitive market, truck
distribution facilities need to lower all of their energy related operating
costs by upgrading their facilities with current generation products while
using Energy Policy Act (EPAct) tax incentives to accelerate the process.

The EPAct Tax Opportunity

Pursuant to Energy Policy Act (EPAct) Section 179D, building owners or
tenants, including truck distribution facilities, making qualifying
energy-reducing investments can obtain immediate tax deductions of up to $1.80
per square foot.

If the building project doesn't qualify for the maximum $1.80 per square
foot immediate tax deduction, there are tax deductions of up to 60 cents
per-square-foot for each of the three major building subsystems: lighting, HVAC
and the building envelope. HVAC is the heating, ventilating, and air
conditioning of a building and the building envelope is every item on the
building’s exterior perimeter that touches the outside world including
roof, walls, insulation, doors, windows and foundation.

The following chart shows potential EPAct tax deductions for 5 of the
largest companies that operate truck distribution facilities:

Lighting

In order to achieve lighting EPAct tax deductions, the watts-per-square-foot
in facilities has to be reduced by between 25% and 40% as compared to a 2001
lighting standard. The following chart shows when tax savings are applicable
for typical spaces in a truck distribution facility:

Building lighting comprises a large portion of truck distribution facility
energy use. Most of these facilities that have not upgraded to energy efficient
lighting in the last few years utilize prior generation metal halide or T-12
fluorescent lighting. However, effective January 1, 2009 most probe-state metal
halide lighting may no longer be manufactured or imported into the United
States, and effective July 1, 2010, most T-12 lighting may no longer be
manufactured or imported in the United States as well. This means that
buildings that still have these older lighting technologies will soon be
subject to large price increases for replacement lamps and bulbs. The following
chart displays the different types of lighting that have been banned:

This prior generation T-12 and metal halide lighting is very energy
inefficient as compared to today's T-8 and T-5 lighting, and a lighting
retrofit can easily reduce lighting electricity costs by 40 to 60 percent. In
addition to large energy cost reduction from the base building lighting, most
truck distribution facilities undergoing lighting retrofits install sensors
that completely shut off the lighting in portions of the facilities that are
not in use. Previously, many truck distribution facilities owners and lighting
specifiers were reluctant to install sensors because they reduced fluorescent
lamp useful life. Today, improved technology sensors are available with
warrantees not to reduce lamp useful life.

If feasible, the heater should be mounted on an exterior wall to optimize
the roof top solar P.V. space.

An example illustrating the maximum utilization of the $1.20 EPAct tax
deduction for a 100,000 sq ft truck distribution facility with a Cambridge
energy efficient heater is as follows:

With this example, the $120,000 (100,000 sq ft x $1.20) entire investment
EPAct tax deduction will be achieved as long as the combined lighting heater
project reduces total energy cost by 33 1/3% as compared to ASHRAE 2001.

Building Envelope

If a truck distribution facility requires re-roofing, this owner should
consider a more energy efficient white roof. Moreover, when re-roofing, this is
the ideal time to consider adding more insulation. If the building already had
an energy efficient design and roof, the owner may want to consider upgrading
to more energy efficient truck bay doors and windows.

With this example, the maximum $180,000 EPAct tax deduction (100,000 sq ft x
$1.80) will be available as long as the combined lighting, heater and roof
project reduces total energy cost by at least 50% as compared to ASHRAE
2001.

New Truck Fuel Requirements

Recently, President Obama issued an executive order mandating more efficient
large truck fuel mileage standards by 2014. The new fuel economy requirement
for trucks is approximately 35 miles per gallon, and marks the first time that
fuel use for large trucks has been regulated. Currently, medium and heavy
trucks represent only 4% of vehicles on American highways, but account for 20%
of the fuel burned. Owners of truck distribution centers should expect new
trucks to have better fuel economy but to be more expensive.

The new truck fuel requirements should also lead to increased use of
biodiesel mixtures and other alternative fuels. Beginning in 2009 as part of
the American Recovery and Reinvestment Act, the Alternative Fuel Infrastructure
Tax Credit amount was extended to 50% ($50,000 cap) of the cost of installing
the alternative fueling equipment. Therefore, as a result of the new fuel
requirements, trucking companies seeking to increase fuel economy can do so by
using alternative fuel and can receive a large tax credit for doing so.

Owners of truck distribution facilities can also take advantage of
exemptions to the federal heavy-truck excise tax by installing EPA approved
idling reduction devices. Idling is when a truck is temporarily parked, such as
at a rest stop; and idle reduction technology provides heat, air conditioning
and/or electricity to the vehicle when otherwise the main engine of the vehicle
would have to run. Examples of these types of devices are battery AC/heating
systems, auxiliary power units, and thermal storage systems. Idling reduction
devices can reduce fuel consumption by not requiring the engine of the truck to
burn fuel while idle. This in turn can increase fuel economy and reduce truck
distribution companies’ operating costs, on top of the excise tax
exemption, once the new fuel requirements are effective.

Conclusion

An energy cost efficient trucking distribution industry is crucial to the
American economy. A combination of market developments, regulatory changes and
new generations of truck and building equipment products can enable these
businesses to substantially reduce their operating costs. Also, truck
distributors who act on these fuel efficiency technologies should mention it in
their engagement proposals since it is a way to distinguish themselves from
their competition. Knowing how to apply the fuel related tax incentives and
EPAct building related tax incentives can greatly assist these businesses.